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Sep 19, 2007

Economic News


Despite yesterday's sharp interest rate cut by the Fed the market anticipated the move. Stocks jumped on the news that the Federal Reserve decided to cut its key interest rate by a 0.5% to 4.75% and the dollar crashed to its historic lowest level against the EUR. The Fed slashed interest rates in order to protect the U.S. economy from sinking into a recession; sparked by the turmoil in the credit and housing markets. During the FOMC meeting, Fed chief Ben Bernanke stressed that the central bank will continue to act as needed to promise price stability and sustainable economic growth.

According to Fed's chief Bernanke's latest move, we can understand that he is more concerned by the sign's of a possible recession which are caused by the tumble in the housing market, jobs market, and the significant reduction in retail sales.

Along with an Interest Rate decision, although somewhat overshadowed by it, other U.S economy news continued to flow yesterday prior to the interest rate news, further exacerbating the currently limping U.S economy. The USD PPI index released at -1.4%, down from last month's figure of 0.6% and well below the forecasted figure of -0.2%. Housing Market Index released inline with expectations at the level of 20, yet down from the previous month's figure of 22. The U.S CPI index is on tap today along with the Housing Starts and Building Permits. All of the latest are expected to come out quite negative.


Traders drove the EUR to a record high against the USD yesterday after the Fed cut its target rate for overnight loans between banks by 0.5% as rising defaults on subprime mortgages rippled through global credit markets. In total, the European currency has gained 5.5% this year versus the USD as traders bet the Fed would cut rates as the U.S. economy slowed. The EUR traded as high as $1.3987 against the USD although exporters/importers may weigh in on any attempt by the market to surpass the psychologically critical 1.40 level.

Yesterday, there was no significant news released from the EUR zone, apart from the German ZEW Economic Sentiment, which came in weaker than expected at -18.1. However this soft data did not manage to slowdown the European currency from extending its gains across the board after a significant Interest Rate cut by the Fed.

Today is also expected to be devoid of data so we should see the EUR continue range trading on it's heights and will heavily depend on the volatility of the equity markets.


Yesterday, the Japanese currency dropped against all 16 major currencies after the Fed rate cut fueled a rally in U.S. stocks, spurring investors to buy riskier assets funded by borrowed yen.

The dollar pared some of its early gains against the yen to trade at 115.90 yens per one USD.

Some traders are moving back into risky positions, buying the high-yielder's and selling the yen, so-called carry trade bets, investors buy high-yielding currencies with funds borrowed in Japan, where the benchmark interest rate is 0.5%.

The yen traded as weak as 115.98 per dollar after the Fed interest rate cut, down 3.9% since it appreciated to 111.61 per dollar on Aug. 17, the strongest since June 2006, as investors exited carry trades.

BOJ kept its benchmark rate at 0.5%, the lowest among industrialized nations and we expect the greenback to continue its recovery against the JPY despite the interest rate differential moving towards JPY favorability.

Technical News


There is a flag formation appearing on the 4 H chart, although not a classical case of a flag formation it is still strong enough to indicate that we will see some sharp movement in the future. Bollinger bands are tightened and volatility is down. However the positive momentum and RSI both indicate that this pair will still go up further before making a reversal which is now almost imminent.


The hourlies and the dailies are both bearish. However both momentum and RSI indicate that this pair is in oversold territory. So the preferred strategy today may be to buy on dips and sell on highs for intra-day trading, but as a daily position there is still room for further downward movement.


There is a bearish cross forming on the 4 Hour chart, which could indicate that a small correction move might occur before the bullish trend continues. The daily charts are bullish, with more room to run. A preferable strategy for position traders might be to go long, as for day traders it might be to go short


The USD/CHF is in a bearish configuration. The volatility decreases as the pair moves without a trend and swings around exponential moving average (EMA 50 and 100).the Bollinger bands are tightened and the 1H, 4H Elliott pattern implies a continuation of the bearish pressure. The target price should be around 1.1810.
The Wild Card


Gold broke the 716.50 resistance level and is in an uptrend supported by 1H exponential moving averages. The volatility is low and the Bollinger bands are tightened. We should expect to see a bullish configuration. 1H, 4H Elliott pattern implies that the Gold should gather momentum today, which provides Forex traders with a great opportunity to go long. The target is expected at around 718.40.

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